Odds are against FTBs so they need our help
Over the years a number of ‘deaths’ have been predicted within the mortgage market, the latest being that of the buy-to-let sector following the Government’s interventionist approach to it in recent months.
The likely demise of such sectors or industries – including bridging loans, credit-repair mortgages and self-employed loans – has proved “greatly exaggerated”, as Mark Twain might have put it, but others have certainly fallen off the mortgage mortal coil.
Reading the latest affordability and mortgage term statistics from the CML, I couldn’t help wonder if we were about to see the extinction of another traditional, standard mortgage offering – the first-time buyer 25-year mortgage term. According to the research, the proportion of first-time borrowers taking out loans with terms longer than 25 years accounts for nearly 60 per cent of the total, and the upward trajectory looks set to continue.
Why should this be? The answer seems to be that first-timers have little choice if they want to secure the loan. The tighter affordability models adopted post-MMR mean that, to meet the higher prices in the housing market, first-timers must schedule their repayments over a longer term to qualify for the loan they need.
It is doubtless not a trend the FCA or Government has anticipated but it is certainly a consequence of a tighter mortgage market, and of a lender community constrained by the new rules.
It also presents another interesting post-MMR conundrum – namely, lending into retirement. For example, if we have first-time buyers with an average age of 35 years-plus taking out 30-year-plus loans, what decision will lenders have to make about a borrower evidencing their ability to pay that mortgage when they move into traditional state retirement age?
It may seem a daft point to raise but, given anecdotal evidence of 40-year-olds being rejected for mortgages based on the same premise, who is to say this will not happen with first-time buyers seeking longer terms?
Indeed, if the term continues to rise, this may become an even trickier underwriting decision.
All in all, the odds appear stacked against first-time buyers in today’s marketplace, despite some lender innovation. Rising house prices, tighter affordability and lenders’ attitude to risk mean a longer term seems the only option.
In this scenario, the importance of advisers in guiding these property rookies through the mortgage maze cannot be underestimated. A concerted effort to support first-timers in their endeavours is undoubtedly needed, and advisers are the right people to deliver it.
Current uncertainty is a boost to bridging sector
As the market hits tumultuous times, there is a growing need for quick cash solutions. The world of lending is in an increasingly uncertain place, with Brexit, buy-to-let changes and the MCD, to name but a few.
Confidence is starting to wobble – not necessarily because anything significant has happened but because people are fearful of what may be to come.
For the brave, however, uncertain times are the best in which to buy, when those with an entrepreneurial spirit can snap up a deal. This has been the case in the buy-to-let market over the past couple of months as landlords attempt to get in quick before the 3 percentage point increase in stamp duty takes effect. At the same time, others are pulling out of the market to avoid being hit by the forthcoming tax changes.
During such times, access to quick cash can mean the difference between buying a property and losing it. When time is of the essence, having the cash to buy almost as soon as an offer is made puts the buyer in a very strong position.
Today’s uncertainty is having a marked effect on the bridging sector as landlords seek short-term funding to secure property purchases, thereby buying extra time to put their long-term mortgage in place.
This is a perfect example of how nobody in this industry works in isolation. Changes in one area nearly always have a knock-on effect elsewhere – in this case in the bridging industry. According to the ASTL, bridging figures have risen quarter-on-quarter since September 2011. The boom in buy-to-let is sure to fuel it further.